The inheritors—the next generation in family-owned Indian businesses—appreciate professional advice on money management,” says Shiv Gupta, founder and chief executive officer, Sanctum Wealth Management Pvt. Ltd, which manages over Rs5,000 crore in assets. Gupta spoke to Mint about inheritors’ diminishing interest in physical assets and greater appetite for a wide range of instruments, such as alternative assets, their shift towards financial assets, and why the shift will accelerate in the coming years. Edited excerpts:

When it comes to investments, what is the inheritors’ approach towards physical assets and financial assets?

There is a greater tendency for next-generation investors to take a holistic approach to their portfolios, with physical assets, particularly real estate, as one of the many components. The portfolio would then include financial assets, physical assets and, in some cases, even corporate holdings. Within financial assets, the appetite to invest in a wider range of instruments such as alternative investments, is also greater. We have seen evidence of a shift towards financial assets and with structural changes in the economy, it is likely that this will accelerate.

Do inheritors view real estate and gold the same way that their parents did?

When it comes to physical assets, there is a clear divergence between the older generation and the younger one, with the latter showing a diminishing interest in them. Some of this is rooted in the fact that the structure of the economy of past decades disproportionately rewarded real estate investing and, consequently, most portfolios were skewed towards this asset class. This has been correcting over time, with diminishing returns in real estate, and an expansion in avenues for investing in financial assets. Having said this, real estate still has a part to play in most, if not all, portfolios. Within it, next-generation investors have displayed appetite to look at opportunities ranging from commercial assets to fixed-income instruments with underlying real estate holdings.

What kind of risk appetite do inheritors have? How do they view equity and debt products?

We don’t see much homogeneity in the risk appetites of this group as they vary considerably, based on individual preferences, circumstances and time horizons. While some would argue that inheritors tend to have a wealth-preservation mindset with a conservative risk appetite, and this is sometimes the case, we have examples of inheritors with an appetite for riskier products and instruments, including equities. Often this is driven by a sophisticated understanding of investing, where longer time horizons mean a lower risk perception of more volatile instruments.

How do you distinguish the product basket for each of your ultra-high-net-worth individual (ultra HNI) clients?

The product basket for each client is customized and depends on the individual’s financial goals, risk profile, philosophy and investment management approach. Having said that, we do have model portfolios that represent risk-reward combinations across five buckets, comprising different proportions for fixed income, equity and alternative assets, ranging from the very conservative to the very aggressive investment profile. Most people tend to fall into one of these buckets, which represents the starting point from which further customization takes place.

Is there any difference in money management and asset allocation for inheritors, entrepreneurs and professionals? What are the differences?

Yes, there are some attributes that tend to be common to members of a category, e.g., wealth preservation for inheritors, and some differences between, say, professionals and entrepreneurs. That said, source of wealth (inheritance versus business versus professional income) is only one of the inputs in determining the approach to management of an investor’s portfolio, alongside investment goals, risk appetite and experience. Therefore, even within these segments, individuals can have very different allocations from each other. For example, it is common to find an entrepreneur and a professional with the same investment profile and asset allocation, and two entrepreneurs with very different ones.

Are next-generation ultra HNIs more willing to take money management inputs from wealth managers and family offices?

The next generation of ultra HNIs tends to be well-educated, well-travelled and attuned to global trends and events. They generally appreciate professional advice and are open to recommendations from experts. Further, when it comes to their finances, they tend to seek a lot of information in order to make well-informed decisions.

When you suggest an asset allocation plan, how often are inheritors willing to follow your advice?

Many in this segment value professional advice and consequently tend to follow it. In general, the process of creating an asset allocation plan is consultative, and sometimes iterative, where the final recommendation comes at the end of a series of discussions designed to understand the investment objectives, risk appetite and management style of the investor. People in this group generally demonstrate a good understanding of risk and return, alongside a grasp of the nuances of investment management, and contribute to the design of the plan to which they generally adhere.

The new generation is tech-savvy and has easy access to information about investment products. How willing are they to sit down and understand the investment instruments with you?

While information on investment products and instruments is indeed easily available, it is accompanied by a lot of noise, and cutting through it requires professional help. Also, market and product information needs to be contextualized to the profile of the investor concerned, which requires assistance. Given this scenario, the new generation is more than willing to spend time to understand their investment options. In fact, we find that their conversations with advisers are often much more engaged, seeking to gain a deeper understanding of the theory and practice of investment management, and in many cases, contributing meaningfully to the process with their own ideas.